Donald Trump Is Understating His Debt by $500 Million

On the campaign trail, Donald Trump has said dealing with the nation's $18 trillion debt will be easy. One reason: Trump could just choose to ignore it. That appears to be how Trump has dealt with some of the debt on his own balance sheet.

You'd think that disclosing the total amount one owes would be an essential line item in any net worth statement, but that figure appears nowhere in Trump's most recently released balance sheet. The Donald does list a category called "loans and mortgages," but that number surprisingly excludes the debt Trump has on a number of buildings that he is a partial owner of, as well as debt he carries on a pile of assets that Trump says are worth over $300 million, but he just labels as "other."

In a previous story, I found that in public financial disclosures, Donald Trump was counting revenues from golf courses, hotel rooms, and sundry sources as “income.” Since Trump didn’t subtract salaries, utilities, maintenance and all the other routine costs, the big numbers he’s trumpeting aren’t income at all, but gross sales. Just as he was overstating his income, his financial statement appears to be understating the size of his debt. The Donald clearly believes that the public deserves no more than a murky view of his own debt picture.

Through heavy digging, Fortune identified the loans Trump has on these other buildings that are not included on his released balance sheet. Add to the loans and mortgages he does disclose and Fortune has determined that Trump's total debt balloons to nearly $1 billion, or about double what he specifically acknowledges he owes. And it could be even larger.

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What's more, Trump, even though he says he isn't, by Fortune's calculations appears to be ignoring debt when calculating his equity in two of his most prestigious properties that are at the heart of his commercial office portfolio. He claims that portfolio is worth $1 billion. But factor in debt and it may only be worth half of that. Put it together and you get a better picture of why Trump is likely worth no where near the $10 billion he says he is.

To understand why, you have to see how I get there.

First, let's look at take a look at the size of his true debt load. In a balance sheet unveiled on June 16th of last year, the day he announced his candidacy, Trump declared a net worth of $8.7 billion, a figure updated in the July release to “in excess of TEN BILLION DOLLARS,” the only words emblazoned in capital letters.

The June balance sheet does list debt of $503 million, which is labeled "loans and mortgages," a seemingly modest figure for a tycoon of his self-declared "massive" wealth. But a lot more debt is connected to his buildings than Trump is letting on. In fact, Trump is subtracting the mortgage amounts to arrive at the equity figure for some holdings. Others he is presenting at full value. But it appears that only the loans on the properties that are held at full value are making into that $503 million number.

Take the asset category labeled “Real Properties owned less than 100% by Donald J. Trump.” The two dominant holdings there are 1290 Avenue of the Americas in Manhattan, and 555 California Street, the former Bank of America complex, in San Francisco. In both of those office holdings, Trump’s partner is Vornado Realty Trust (vno), a highly successful REIT led by CEO Steven Roth.

Trump gives the partnership bucket on his balance sheet a total value of $943 million, “net of debt.” How much debt? Vornado’s 10-K discloses that 1290 carries a mortgage of $950 million, and 555 is encumbered by a loan of $589 million. Trump, according to the Vornado filings, owns 30% of the two buildings. That means Trump's share of the overall borrowings of $1.55 billion is $465 million.

That brings Trump's debt figure up to at least $968 million. But we're not done yet. Trump has other loans that are lying under camouflage as well. Trump's balance sheet also has a category label "other assets" that he's claiming are worth $317 million. Those assets, like the partially owned buildings, are listed as "net of debt." What is that other stuff? Trump doesn't say but it could include such things as five airplanes, a golf production company, the rights to operate the skating rink in New York Central Park as well as the Ferry Golf course in the Bronx, and Trump Model Management. But while Trump discloses how much income he gets from these assets and a range for their worth, he doesn't say how much he has borrowed against them, or how much he owes on other unidentified assets that may provide security for loans.

The bigger problem is this: While Trump says that he has netted the debt out of his partially owned properties, it doesn't appear he has. Either that or he has grossly inflated the value of the properties. T he only financial statement that Trump has released—the one from June—is two years old. The value of those properties have surely increased since then. Given what real estate values have done since then, I estimate Trump's 30% stake of the buildings to be around $1.1 billion. Subtract around $100 million for a third minority holding—his 50% share in the Trump Hotel International Hotel Las Vegas—and Trump is effectively boasting that his equity in the Vornado-Trump office towers is worth $1 billion or more.

Indeed, his share of these two high-rises would be worth $1 billion—if it they didn’t have big mortgages. Top tenants occupy 2.1 million feet of space in 1290 Avenue of the Americas, and 1.8m million at 555 California, and according to Vornado’s 10-K, both are getting $65 to $70 a foot in rent. By Fortune’s estimates, their market values, pre-debt, are around $1.6 billion for 1290, and $1.5 billion for 555. So Trump’s 30% share of that combined $3.1 billion is around $930 million. Add the $100 million or so from the Las Vegas hotel, and we arrive at a sum approaching what Trump declares for his partnership properties.

But that’s before subtracting mortgage debt. Nor does Trump’s share in the cash flow generated by these holdings support his claim of a $10 billion-plus net worth. In the 10-K, Vornado states that its share in the EBITDA from 555 is $49.975 million. Hence, Trump’s share is just over $21 million. Deduct his portion of the interest expense—the rate on the $589 million loan is 3.34%—as well as his pro-rata contribution to capital expenditures for upkeep, and he probably nets around $9 million a year. Running the same calculation for 1290, Trump’s share of the cash flow would come to about $10 million. And that’s before taxes, making the real net a mystery, since Donald may prove the only nominee in modern history not to release his tax returns.

The two Vornado-Trump towers account for more than one-third of Trump’s portfolio of office and retail space, and produce much bigger rents than his largest building, 40 Wall Street. So a major bulwark of his empire is generating only around $20 million in pre-tax, free cash flow. Any observer who knows numbers would expect a billionaire worth “in excess of $10 billion” to be collecting around $500 million before taxes. Trump surely has plenty of real income beyond that $20 million, but given the importance of the partnership properties, it’s hard to see how his total income, as normally defined, gets beyond $100 million, let alone five-times that number.

If he becomes president, Trump’s biggest challenge could be tackling the debt explosion looming just a few years away. Although Trump doesn’t appear in any peril from over-borrowing, his lack of disclosure on his loans suggests he won’t exactly dig into identifying the danger zones as America’s outlays rapidly outstrip its revenues. It would be great if a potential president also had excellent business sense, displaying a sober mastery of numbers and an attention to detail, who could determine and explain what's required to rein in future deficits. What America needs isn't a promoter but a fiscal pragmatist, and that isn't Donald Trump.